Federal Reserve Survey Reports Continued Tight Lending Conditions


The Federal Reserve’s January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices reports continued tight lending conditions by banks to businesses and households with little change from the last survey. The survey is based on responses from 57 domestic banks and 22 U.S. branches of foreign banks.

With respect to commercial real estate lending, on net, 20 percent of banks indicated that they had reduced lending for commercial construction. However, on a net basis, 10 percent of banks reported an increase in demand for commercial construction based lending, the highest such change reported since 2006. This increase in demand was mostly concentrated among large banks.

Banks continue to report tightened terms of commercial real estate lending. On a net basis, 40 percent of domestic banks reported having tightened loan-to-value ratios.

With respect to residential real estate lending, the Fed reported no changes in prime mortgage lending, but 15 percent of banks reported tightened lending on non-traditional mortgage products. However, a special question of the survey found that 35 percent of banks expected to increase residential real estate lending during the first half of 2011. This result was true for both large and small banks.

As a whole, the Fed survey is consistent with NAHB survey data of builders’ responses with respect to tight lending practices, particularly with respect to  ADC loans, although not  to the degree to which builders continue to report an overly tight lending environment. Builders’ ADC loans are part of the  commercial real estate lending portfolio, and builders continue to report no sign of eased lending practices.

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